Chapter 19 - Share Based Compensation And Earnings Per Share

Question 1

Earnings Per Share (EPS)

Answer 1

In a company with a simple capital structure, the amount the holder of a single share of common stock would receive if all earnings were distributed in the form of dividends or the amount of loss that would be allocated to the holder of a single share of common stock.

EPS = (Net income or loss - current period preferred dividends declared - current period preferred dividends on cumulative preferred stock not declared) / weighted average common shares outstanding

Question 2

Simple Capital Structure

Answer 2

A capital structure under which there are no potentially dilutive securities that can be converted into common stock such as convertible bonds, convertible preferred stock, options, rights, and warrants.

Question 3

Complex Capital Structure

Answer 3

A capital structure under which there are potentially dilutive securities that can be converted into common stock.

Question 4

Basic EPS

Answer 4

In a company with a complex capital structure, the amount the holder of a single share of common stock would receive if all earnings were distributed in the form of dividends or the amount of loss that would be allocated to the holder of a single share of common stock.

Basic EPS = (Net income or loss - current preferred dividends declared - current preferred.